It used to be enough for an estate trustee (executor) to provide the Ontario government with their own calculation of the value of an estate when filing for letters probate. Provincial probate fees are assessed on the estate value and equal $250 for the first $50,000 ($5 for each $1000, up to $50,000), and 1.5% on the excess value.

Now, to ensure that estate values are not underestimated, estate trustees in Ontario must file an Estate Information Return (AIF). This form must be filed within 90 days of the estate trustee being issued a probate certificate by the provincial government. The report requires disclosure of much more detailed information regarding the value of estate assets than was required in the past The return must be filed even if the value of the estate is less than $1,000 and no probate fees are payable.

No return is required where an executor applied for the Estate Certificate (letters probate) prior to January 1, 2015.

Here are a few interesting highlights regarding the return:

You are on the hook for four years – If, within four years of the issuance of the Estate Certificate by the Ontario Government, an estate trustee becomes aware than any information given to the Ministry of Finance on an Information Return is incorrect or incomplete, an amended Information Return must be received by the Ministry of Finance within 30 calendar days of the estate representative becoming aware that the information is incomplete or inaccurate.

Discovering more property – If, after receiving the Estate Certificate, an estate trustee discovers additional property owned by the deceased, a statement disclosing the subsequently discovered property must be filed with the court within six months of the discovery.

Non filing penalties are stiff – Estate trustees who fail to file the Information Return as required, or who make false or misleading statements ono the return, are guilty of an offence and, on conviction, are liable to a fine of at least $1,000 and up to twice the tax payable by the estate, or imprisonment of not more than two years, or both. Yikes!

You have to prove values – Estate trustees should be able to substantiate valuations. Depending on the asset, valuations can be complicated, (private business for example) and a professional valuator with the necessary expertise may be necessary. Because professional valuations can be expensive, sufficient estate residue be held back from distribution until such costs are paid. Records relevant to the valuation of estate assets must be retained, and seven years appears to be the period that satisfies the Ministry of Finance.

You can obtain the full Guide by contacting us or by doing an internet search using the term, “Estate Information Return Ontario”.

Yes. The executor has the right to charge a fee or “compensation” for managing an estate. The Trustee Act states: “A trustee, guardian or personal representative is entitled to such fair and reasonable allowance for the care, pains and trouble, and the time expended in and about the estate, as may be allowed by a judge of the Superior Court of Justice.” While there is no set fee in the Trustee Act or elsewhere, the courts have developed “guidelines” for calculating the executor’s compensation as follows:

2 ½ % of the capital receipts
2 ½ % on capital disbursements
2 ½ % on revenue receipts
2 ½ % on revenue disbursements
2/5 of 1 % per year management fee on the gross value of the estate

It is important to note that the “guidelines” are just that, guidelines, and may be varied from in certain circumstances. For instance, the courts recognize that in some cases it may be appropriate for an executor to charge more compensation and in other cases, the guidelines may be too much. In this regard, the courts have historically considered the following five factors in determining the appropriate amount to compensate an executor if the “guidelines” are deemed inappropriate:

The size of the estate

The care, responsibility and risks undertaken by the executor

The time spent by the executor managing the estate

The skill and ability demonstrated by the executor in managing the estate

The results obtained by the executor in managing the estate; i.e., the extent to which the estate was successfully administered

Of course, if the Will sets out the executor’s compensation, this amount will be followed and the guidelines and the above factors need not be considered. There is also a legal presumption which states that if the executor is left a specific bequest in the Will, this amount is intended to be his or her compensation (this “presumption” can be rebutted by the executor).

The funds paid to the executor as compensation are deducted from the “residue” of the estate. The term “residue” refers to the funds that are left over after all the estate debts, general legacies and other specific bequests have been paid. In many instances, the executor elects not to charge compensation because he or she is either the only residuary beneficiary or one of a few residuary beneficiaries (i.e., one sibling acting as the estate trustee on behalf of his or her siblings). The compensation is taxable income whereas the inheritance is not so it may be more tax-advantageous for an executor to forego compensation, depending on the number of beneficiaries.

Jason Allan is a Barrister and Solicitor with Allan Law in Aurora, Ontario. www.allanlaw.ca

Being appointed executor of a loved one’s Will is an expression of the ultimate trust that person places in you. Although you may emotionally feel the need to honour the wishes of the deceased, there are some practical aspects one should take into consideration before taking any action on behalf of the estate. You may wonder whether you have the necessary skills and time to manage the deceased’s affairs. Are you legally bound to handle the estate once appointed executor in a will? This article reviews your basic responsibilities as an executor and explores avenues open to you.

When appointed as an executor, what options available to you?

You can either decline or accept to be an executor at the time you are notified of your appointment after the death of the individual. Timing and process are important if you choose not to act as executor. A renunciation should be done in the form required by your provincial estate law (a sample Ontario Form 74.11 courts of justice act is here) and submitted before carrying out any duties related to the estate. If you perform any tasks on behalf of the estate prior to renouncing, the court may reject your application to refuse your appointment as executor.

Executor duties

An estate executor has many estate settlement responsibilities. Those responsibilities include, but are not limited to the following:

Locating wills - In order to reassure third parties and beneficiaries, executors are often required to probate a will. Probate is the legal process through which a will is validated by the court as the last valid will, and gives legal authority to executors of the estate.

Arranging funeral – Although the funeral is usually organized by family members, the executor is legally responsible for the costs associated with funeral arrangements. The executor should negotiate funeral details with family members while focusing on funeral cost control because of his duty to protect estate value for beneficiaries’ interest.

Inventorying, managing and protecting assets – it is the responsibility of the executor to identify, locate, appraise and make a listing of all deceased’s assets and their market value as at the date of death. The executor’s duty to protect assets may involve purchasing liability and damage insurance. Also, the executor must manage estate assets prudently and reasonably until full distribution. If necessary, professional advisers can be hired to provide assistance with estate law, investment management and accounting services.

Paying debts and preparing tax return– The executor can be held personally liable for the deceased debts (including tax) and should make an effort to identify and locate creditors. Also, an executor has the obligation to file a final tax return for the deceased by the later of April 30th of the year following the year of death and 6 months after the date of death. When the deceased is self-employed the deadline is the later of June 15th of the year following the year of death and 6 months after the date of death. Business, trust and “rights or things” returns may be also reported on separate tax returns if it is advantageous to do so. As all deceased’s capital assets and other properties are deemed disposed of at fair market value immediately prior to death, except when they are transferred to the spouse or a spousal trust within 36 months after death, it may be appropriate in some circumstances that the executor elects to transfer assets to the spouse or a spousal trust at market value if permitted in the Will. This strategy will be beneficial to the estate when the deceased has capital losses carried forward from previous years, or has an unused capital gains exemption. An executor should also consider making a final contribution to an RRSP for the year of death when the deceased still has unused contribution room. Furthermore, an executor is responsible for filing annual tax returns for the estate and should also find out if there are any foreign tax issues. An experienced chartered accountant should be hired to ensure proper reporting.

Distributing assets to beneficiaries according to the will – Before any distribution, it is recommended that the executor obtains a clearance certificate from Canada Revenue Agency in order to avoid any personal liability for income tax owed by the estate due to any future adjustment in tax return. A clearance certificate will be provided when estimated taxes are paid, and any tax liability arising on a future date will be shared by beneficiaries.

Preparing an accounting of the estate – One of the executor legal responsibilities is to present an accounting of the estate to the beneficiaries. Any debts, receipts (including insurance proceeds) and disbursements should be properly recorded.

Are you inclined to accept your appointment in spite of a lack of technical competency and/or time?

Yes, there is still an option for you. You can hire a trust company, whose trust officers will perform all the actual duties for you. The only thing you will be responsible for is to retain the final decision making as you are still bound by the legal duty “not to delegate decisions” about the estate management and affairs. Note that the costs of hiring professional advisers, including a trust company, will be paid by the estate.

Are you a non-resident executor?

Some provinces require posting a bond if executor is not a Canadian or Commonwealth country resident. In case the majority of executors are not Canadian residents, the estate will be taxed as a non-resident trust and tax will be deducted at source on any income earned in Canada. Also, you have to make yourself readily available for any regulatory audit in Canada.

Being an executor of an estate is an honour and significant responsibility.We have highlighted some of the major considerations.Here is a useful checklist that covers most executor duties should the need arise.

"This information is general in nature and is not intended to constitute specific tax or legal advice for any individual. It is best to speak to your tax and legal professionals for specific advice.”

Getting Married

How can getting married be an estate planning mistake? Well, in most Canadian Provinces, marriage automatically revokes a will made prior to the marriage unless the will clearly states that it was created in contemplation of marriage (to the person you ultimately marry!). So unless you have a new will drafted and signed following marriage, at your death you would be considered intestate (having died without a valid will). The estate laws of the province would then dictate the distribution of your assets. The unintended consequences could include:

Bequests to friends or charities outlined in the pre-marriage document would be ineffective.

Delays can result. For example, in Ontario, Pursuant to s. 26 of the Estates Administration Act, subject to s. 53 of the Trustee Act, no distribution is to take place from an intestacy for one year.

Trusts for children that are commonly included in wills to delay the distribution of estate proceeds beyond the age of majority (18) would be ineffective.

Even if you would be satisfied with how the provincial government dictates the distribution of your assets, the estate would bear an additional administrative burden resulting in additional legal and court fees.

Getting separated

Unlike marriage, separation (without any formal separation agreement or divorce) will not automatically revoke a will that likely has all or a significant portion of the estate benefitting the soon to be ex-spouse. We recommend getting legal estate planning advice immediately following a marriage breakdown.

Having an outdated will

Wills are drafted in line with your financial and relationship status at a moment in time. Flash forward a decade or two and what was a sensible will can result in unintended consequences. There are enumerable changes that would justify an update or redrafting of a will, but here are a few examples.

A large charitable bequest is named in dollar terms with the estate residue directed to family. At the time of drafting, if the person’s estate is worth $2 million and the bequest is for $500,000 that might be reasonable. Over time, if the value of the estate declines as the person uses their capital in retirement, they may pass away with an estate valued at less than the bequest. In this case, the family members would receive no benefit. Estate litigation could result. Charities are known to get involved in Estate Litigation to secure bequests, so don’t assume that they are pushovers.

Children often experience different degrees of financial success/hardship over time. A will that distributes an estate equally, may not be desirable in this scenario.

The optimal choice for a guardian for minor children may also evolve over time and should be reflected in an updated will.

The suitability of named executors can also change over time.

Ignoring tax implications

Although there is no estate tax in Canada, significant taxation can occur at death. These taxes result from the “deemed disposition” rule wherein CRA considers all of your assets “sold” on the day prior to your death. Unless you designate your spouse as beneficiary of any registered plans and other appreciated assets, taxation will result. If taxation is not considered, unintended consequences can result. We will deal with this in a future post.

Procrastination

Taking the time and spending the money to have a well developed estate plan is a gift that you give your survivors. Leaving an untidy estate for your mourning loved ones to deal with is easily avoidable. It is one of those tasks that falls to the bottom of the to do list, but when complete results in a sense of accomplishment and peace of mind.

This information is not to be construed as legal advice. If legal assistance is required, the service of a competent professional should be sought.

Those who have agreed to act as a Power of Attorney for property may be subject to additional reporting requirements in the future. If the proposed amendments to the Substitute Decisions Act under Bill 9 get passed, POAs for property will have additional obligations. Bill 9 received first reading in February 2013.

The legislation would require an attorney an attorney under a continuing power of attorney for property to make an annual accounting to the Public Guardian and Trustees Office (PGT) or where requested by the grantor. It is still unclear as to the nature of the reporting, but it would likely include the grantor’s assets, liabilities and the amount of compensation taken by the attorney.

The legislation also proposes to establish a formal registry of attorneys for both property and personal care.

It will be interesting to see how onerous the reporting obligations are and whether there will be a surge in attorneys no longer wishing to take on the role. Unless the changes are communicated directly to those named as POAs, I don’t anticipate any mass exodus. Should the additional reporting become more broadly understood, some POAs may ask the grantor to find an alternate.

Those who are unable to find someone willing to be their primary or alternate Power of Attorney for property will rely on the services of the PGT. The PGT could find itself strained under the growing demand and would need to increase staff (which would require more tax dollars). Should the dollars not be available, service would eventually be compromised.

Stay tuned here for updates as they become available.

This information is not to be construed as legal advice. If legal assistance is required, the service of a competent professional should be sought. Feel free to refer to Our Network page for recommended professionals.

A few Money Insights readers that read the most recent blog regarding searching for unclaimed bank balances asked if there was a similar search service for missing life insurance policies.

There is. It is free, and is offered by the OmbudServices for Life and Health Insurance (OLHI). But before the OmbudServices dedicate time and resources searching for a policy, they expect you to have done a little sleuthing first. At the very least, there are two minimum requirements:

1. There is a reasonable basis for the search. Due to the size and scope of each search, there must be basic evidence to support the premise that some un-located coverage does exist.

2. Specific, factual data about the deceased is available

OLHI expects that you will have already conducted a thorough search through the deceased’s papers, files, and safety deposit boxes. In spite of the lack of policy documents, you must have reason to believe that a policy exists. For example, policy renewal statements, bank statements showing pre-authorized premium payments, and written correspondence with an insurance company would likely justify an inquiry.

OLHI will not do a search within the first three months following the date of death or later than two years after the date of death.

The search will not turn up policies purchased outside of Canada or group insurance policies. For possible group insurance, an executor should contact the deceased’s employer and professional associations to determine if any group life insurance existed. Credit card issuers and banks should be contacted to confirm if any creditor insurance had been purchased.

Some of our clients call us nags and we thank them for the compliment.

Actually, because we believe in complete professional transparency, we tell prospective clients up front that nagging is part of our job.

As a result, 95% of our clients have well crafted Wills and Powers of Attorney. We know how important these documents are for individuals of any age and our value as advisors is diminished if this piece of the financial plan is not completed.

So we nag.

We even draft up instructions and deliver them to the lawyer for review and discussion with the client if that will move things along. Whatever it takes, really. It is just not good enough to think that our responsibility ends when the recommendation to get Wills and Powers of Attorney completed is given. We know that human nature often puts this task at the bottom of the "to do" list.

So what about the 5% who don't have these documents complete yet? Well, we are still nagging them.......!!